In business, P2P has become an alternative financing form. In Singapore, the benefit of the P2P lending system was recognized when COVID-19 was at its peak. The small and medium enterprises (SME) suffered a lot because of the economy’s downfall during the pandemic.
P2p Lending System
P2P loan is a type of finance in which many investors bring their money to one place to offer alone. This is one of the newer financing methods that gained immense popularity in the last decade. In the case of P2P lending, you can quickly get a loan from investors via a P2P loan platform. A P2P loan platform would be a service or website that invest connects investors with businesses that require financing.
P2p Lending Format
As observed in other types of debt financing, P2P financing also requires a loan. In P2P funding, an investor group will give you the money through the lending platform. You will have to repay the money depending on the terms that have been set in place. No banks are involved with the P2P lending system. The lending platform facilitates the money exchange between the investor’s group and you. The investors bring their money together to provide a business loan via the P2P loan platform.
What Are The Pros Of The P2p Lending System?
Since there is no bank involvement, P2P loans are easier to receive than traditional loans. For receiving finance for your business, you do not have to jump through hoops that banks would require. You can obtain a P2P loan in certain cases, even if you have no credit or bad credit. However, this cannot be said for traditional loans.
Since a P2P loan is not secured, there is not equilateral. You can quickly get a P2P loan without providing any form of collateral to the investor’s group. Since all types of P2P loans are unsecured, it has become a prevalent choice amongst early-stage and startup businesses that do not have assets or have very few assets.
What Are The Cons Of The P2P Loan System?
If you have a large business, P2P lending is not the right option for you. Most P2P loans are available at much smaller amounts than the loan you can avail of from a traditional bank.
The interest rate in the case of P2P lending may also be higher. It is an easy debt financing type. The principle of the P2P will have to be paid back with interest. The interest rates in the case of P2P loans may vary from one group to another. They may also be higher than the interest rate put on traditional loans that you avail from banks.
Therefore, if you are an SME, you must carefully weigh your options and then decide if P2P is a good option for you. It is also advisable to check out a few lending platforms before finalizing one.